Equal payments vs equal principal vs interest-only: compare loan costs

How do the three repayment methods work?

With equal monthly payments, a fixed-rate amortizing loan sets one combined principal-and-interest payment for the term. Early installments contain more interest; the principal share increases as the balance falls.

Equal-principal repayment divides the borrowed principal equally among the months and adds interest on the outstanding balance. Interest-only repayment pays monthly interest but holds the principal until the last installment, so the maturity payment is much larger.

Worked example: 12,000 principal, 12% annual rate, one year

Use a deliberately small illustrative balance of 12,000, a nominal annual rate of 12%, and 12 monthly periods. The simple model applies a 1% monthly rate and excludes fees and taxes. It does not represent a real loan quote.

For equal monthly payments, the installment is about 1,066.19 and total interest about 794.23. Equal principal repays 1,000 of principal each month plus interest; the first payment is 1,120, the last 1,010 and total interest 780. Interest-only pays 120 per month, with a 12,120 final payment and total interest 1,440. Display rounding can cause small differences in summed amounts.

• Equal monthly: about 1,066.19 per month; about 794.23 total interest
• Equal principal: 1,120 first / 1,010 last; 780 total interest
• Interest-only: 120 during the term / 12,120 at maturity; 1,440 total interest

Does the smallest early payment mean the lowest cost?

No. Interest-only repayment has the lightest initial cash outflow in this example, but the balance never decreases until the maturity payment. Borrowers need a realistic way to repay or refinance that principal.

Equal principal can reduce overall interest through faster balance repayment, yet the higher initial installment might be difficult for some budgets. Compare the payment schedule as well as total interest, not simply the lowest first-month number.

How to run the comparison using the calculator

Enter the principal, nominal annual interest percentage and the term in whole years. Select the equal-monthly, equal-principal or monthly-interest-with-principal-at-maturity mode. Keep the same assumptions for each run.

Review first and last payments, outstanding balances and total interest. The calculator also displays a monthly repayment schedule with a CSV export. Figures use a fixed-rate, end-of-month model with unrounded intermediate calculations.

• Keep principal, rate and term the same
• Compare first payment, last payment and total interest
• Export the schedule to review payment timing

Costs and conditions the model does not include

Real mortgages may involve lender fees, insurance, taxes, changing interest rates and different payment dates. The Consumer Financial Protection Bureau explains that total mortgage outgoings can be higher than the principal-and-interest amount alone.

The tool does not decide approval, affordability regulations or regulatory APR, and it does not model early repayment penalties or changing rates. Read the actual lender quote and repayment terms before making a borrowing decision.